Thursday, August 2, 2012
Draghi will do what it takes (give or take)
August 2, 2012
Financial markets got some clarity from the European Central Bank (ECB) president today on what the bank was prepared to do to help troubled eurozone economies. There was also some genuine news in what Mario Draghi said on the issue of seniority.
But - as Mr Draghi said himself - there are plenty of details still to be filled in. As I suggested in my blog on Saturday, he's going to make sure that governments get their act together first.
The ECB president confirmed that the bank was willing to buy government bonds in the secondary market, but there were three key conditions.
First, the country concerned must have already applied for support from the European rescue funds - the European Financial Stability Facility (EFSF) and/or the European Stability Mechanism (ESM).
Second, that support would need to have strings attached - conditionality. In other words, the beneficiary government would need to have made appropriate promises on fiscal policy and structural reforms.
And third, the ECB governing council would itself have to decide that central bank bond purchases are also needed. Here, Mr Draghi was very clear that "monetary policy remains independent": conditions one and two are necessary for the ECB to act, but there's no guarantee that it will.